Hitachi Ltd Ord

It is time.

So we would now like to start the briefing on INSPIRE 2027 Hitachi Group's new management plan and consolidated financial results for the year ended March 31, 2025. Thank you very much for taking time out of your busy schedule to attend today. Today, First, President Tokunaga will explain the new management plan. Then, Mr. Kato, CFO, will explain the FY 2024 financial results, followed by a Q&A session. We plan to end at around 6 p.m. The presentation material is posted on Hitachi Limited IR website and news release site, so please take a look. Let me introduce the two speakers. Toshiaki Tokunaga, President and CEO of Hitachi Limited. Tomomi Kato, Senior Vice President and Executive Officer, CFO. First, President Tokunaga will talk about the new management plan. Mr. Tokunaga, the floor is yours.

Hello, everyone. My name is Tokunaga, President and CEO. Thank you very much for coming to this meeting, despite your busy schedules. Now it is my pleasure to talk about Inspire 2027, which is our new management plan. First of all, I would like to begin by sharing my determination to execute the new management plan of INSPIRED2027. Hitachi is a globally unique company that offers IT, OT, and products together. Our strength lies in our ability to integrate technology and domain knowledge to transform society's infrastructure. Additionally, even in a world where fragmentation is accelerating, we believe that we can address regional challenges leveraging our autonomous decentralized business structure. In the INSPIRE 2027, I will explain today, based on the current business environment, we will focus on strengthening cash flow. optimal capital allocation, and accelerating portfolio reform and transformation more than ever before. In so doing, we will fully leverage DATI's strength and aim to further enhance corporate value. In addition, to demonstrate our unwavering commitment to transforming DATI into a digital-centric company, we have set up targets for the Lumata business to represent 80% of total revenues and adjusted EBITDA margin of over 20%. We have established these targets as new long-term management goals. As we have embarked upon this new long-term management plan, we have changed the name of our previous mid-term management plan, MMP, to INSPIRE 2027. In a business environment beset with future uncertainty, having entered this year, it's very important to identify risk and implement management measures with a high degree of agility. At the same time, we will maintain a steadfast commitment to a long-term direction of driving sustainable growth to elevate Hitachi to the next stage. And above all, we are committed to contributing to the realization of a harmonized society in which the environment, well-being, and economic growth are in harmony, which is Hitachi's vision. We will integrate the combined strength of the 280,000 colleagues of the Hitachi Group in one Hitachi, and strive further to enhance corporate value by implementing the INSPIRE 2027. Let me proceed to the details of the plan. I would like to start off by a reflection of the Mid-Term Management Plan 2024. Under the President Kojima's leadership, the 2024 MMP achieved record high KPIs across the board, successfully transitioning to organic growth as targeted and significantly enhancing corporate value, in particular, in the plan. Cash flow and VOIC-focused management was emphasized, and we have been able to firmly establish and see tangible results. Additionally, the global autonomous decentralized management initiative has been underway for a decade, has made progress, enhancing resilience against geopolitical risks. And it has reached a local procurement rate, reached 82%, and In order to have a sustainable growth and further enhance our corporate value, there are many more challenges that must be overcome. Specifically, there are still gaps in profitability and capital efficiency compared to our global peers. During the 2024 MMP, Investments to drive the next phase of growth were not executed as planned. Furthermore, the business environment continues to change rapidly, and there is no end to Hitachi's business portfolio transformation. In addition, uncertain business environment in 2025 Continuing to strengthen risk management will be essential for sustainable growth. In Inspire 2027, I am committed to addressing these challenges head-on, elevating the Hitachi Group to the next stage and striving further to enhance corporate value. Next, I would like to give you my explanation regarding the vision of INSPIRE 2027. In the INSPIRE 2027, we are aiming to contribute to the realization of a harmonized society where environment, well-being, and economic growth are in harmony to achieve Hitachi's sustainable growth. True One Hitachi will be the key. In the MMP 2024, Hitachi achieved the transmission to organic earth, and each business has become stronger. Against this backdrop, Inspire 2037 Covering the fiscal years of 25 to 27, by leveraging the true one Hitachi with digital at its core, we will generate uniquely Hitachi values and premium offerings and aim for sustainable growth. The four examples shown at the bottom of the slide illustrate what we believe are uniquely Hitachi values. Next, I'd like to talk about the organizational structure to promote and inspire 2027. From fiscal year 2025, Hitachi will expand its four main businesses, energy, mobility, connected industries, and digital systems and services across six global regions. The newly established strategic and savvy business unit directly reporting to the CEO will promote the development of new core business under the One Hitachi initiative. These are the financial KPIs targeted in Inspire 2027. In Inspire 2027, we have set targets for five KPIs with the aim of achieving sustainable growth. For revenues, we will aim for sustainable growth of 7% to 9%, even under uncertain economic conditions. For adjusted income margin, we will aim for global peer level of 13% to 15%. For cash flow conversion, we aim for a level of over 90%. In terms of ROIC, we aim for the level of 12% to 13%, despite anticipating a certain growth in investments under INSPIRE-2027. And regarding LOMADA, the engine driving growth and possibility improvement, we aim to a revenue ratio of over 50% and EBITDA margin of over 18%. Next, I'd like to talk about the strengthening of cash flow generation and capital allocation. We will continue to work on SPIRE 2027 on the uncertain environment. Therefore, we will continue to strengthen cash flow. In addition to the four initiatives listed on the left side of the slide, we will certainly implement business portfolio reforms. Targeting the non-Lomada business and minority shares, we will also continue to prioritize capital allocation management in Inspire 2027. Regarding growth and investments, we will focus on strengthening Lomada business while maintaining financial discipline. In selecting investment targets, we will place importance not only on strategic fit, but also on returns, namely ROIC spread and adjusted EBITDA. Furthermore, we will consider Shareholder returns are prioritizing stable dividends while also conducting flexible share buybacks. The dividend increase and 300 billion yen share buyback announced today reflect our commitment to implementing this policy. Going forward, we will continue to engage in dialogue with the markets and engage in sincere communication with our investors to expand returns over the medium to the long term. Now, here onward, I would like to talk about the growth strategy of Inspire 2027. The first point is the evolution to Lumada 3.0. Lumada has continued to evolve since it was launched in 2016. Lumada 1.0, as it was called at the time of the launch, has evolved as an IoT platform that enables customers to transform their business with data-driven insights. In the MMP 2024, the acquisition of Global Logic has significantly strengthened Hitachi's digital engineering capabilities, enabling Lumada to evolve to Lumada 2.0. This enables customers to evolve their entire value chain through the use of digital technology. Furthermore, Inspire 2027 Lomada will evolve into Lomada 3.0 with AI enhanced by Hitachi Domain's knowledge. Through business portfolio reforms, Hitachi's digital capabilities, domain knowledge, and installed base have been significantly strengthened. With Lumada 3.0, we will leverage AI enhanced with 30 domain knowledge to drive the transformation for the social infrastructure. In line with the evolution to Lumada 3.0, we will clarify the scope of Lumada's business. We will simplify the four categories of Lumada business in Lumada 2.0 into two categories. Specifically, we will integrate the law Half of Lumado 2.0 connected to products and system integration into digitalized assets. Meanwhile, the upper half of Lumado 2.0, consisting of the managed service and digital engineering, will be integrated into digital services. This will clarify that the installed base of energy railway and industry installed base will be clarified as an asset to generate value not only for generating data. At the same time, no matter Enhanced with domain knowledge and AI will further strengthen digital services that convert collected data into value. And by scale up, we can grow the top line as well as the bottom line. From fiscal 2024 to 2025, we expect the model revenues to grow by 30% and margin to grow by 1 percentage point. A good example of Lumada 3.0 is HMAX. By combining railway domain knowledge with AI, it collects and analyzes real-time operation data such as vehicle signal and operational status, thereby improving the asset efficiency of railway infrastructure, HMAX. is already deployed on approximately 8,000 vehicles worldwide, achieving results such as 15% reduction in maintenance costs and 20% reduction in train delays. The evolution of Nomad 3.0 does not stop here. Based on the track record of HMAX and developed for railways, Nomad 3.0 plans to expand into HMAX for energy for energy sector and HMAX for industry for the industrial sector. Furthermore, we aim to expand beyond our own install base to other companies' install bases as well. We are already applying HVACs for railways to other companies' vehicles in Europe. As explained above, Lumada 3.0 aims to achieve a sustainable growth in both the top-line and bottom-line performance by scaling across multiple industries and multiple installed bases. Hitachi will continue to strengthen its Lumada business with the aim of further improving profitability. By the end of 2027, the final year We aim to achieve Lumada revenue ratio of over 50% and EBITDA margin of over 18%. Additionally, we have established the target level for Lumada business as a long-term management goal. Going forward, we are committed to advancing our business operations with the goal of achieving Lumada revenue ratio of over 80% and EBITDA margin of over 20%. which is our target level in order to achieve this goal, it is essential to strengthen investments in Romada and continuous transmission of business portfolio will also be required. For the non-Romada business, where we cannot hope for high growth or profitability, we will take decisive action. Next, I would like to talk about the second pillar of our growth strategy to strengthen our four main businesses with the mother at its core. GX.